Gasoline supply drop fails to keep crude afloat

CBS.MarketWatch.com

NEW YORK (CBS.MW) -- Gasoline futures rose Wednesday after a report showed a drop in U.S. supplies. Crude oil futures fell below $17 a barrel for the first time in over a month, unable to hold onto earlier gains following a sizable rise in crude stocks.

On the New York Mercantile Exchange, June crude oil fell 23 cents to $16.88 a barrel and June heating oil fell 0.35 cents to 39.86 cents a gallon. June unleaded gasoline rose 0.51 cents to 49.55 cents a gallon

Wednesday's close is a "fall-off from the American Petroleum Institute report," Phil Flynn, oil analyst at Alaron Trading. "Crude is reacting to the negative aspect of the report, while gasoline is reacting to the positive news." Heating oil is just tagging along with crude, he said.

The day's up and down action shows that the market doesn't know how to take the news, Flynn said and the sector is presently in a bearish psychology, "waiting for the next big piece of news."

Crude prices have lost about two dollars a barrel in just two weeks -- a downward movement sparked by a rise in gasoline inventories on the API's May 4 report.

API report

After Tuesday's close of trading,the API said gasoline stocks fell 4.28 million barrels to 218.74 million barrels. That compares with a revised rise of about 4.6 million barrels in last week's report which pushed crude prices below the $18-a-barrel mark. During the same period last year, stocks fell 3.3 million barrels. See commodity headlines.

Analysts expected this week's report from the API to show another rise in gasoline stocks after the last two reports reflected a steady increase.

Early Wednesday, the Department of Energy confirmed the drop with a minor 900,000 barrel decrease in gasoline stocks.

The drop in gasoline supplies is "very, very bullish," said Flynn.

The API also said crude oil inventories rose 3.93 million to 335.07 million barrels for the week ended May 14. Analysts expected to see a drop of 1 million to a rise of 2 million barrels. Distillates, which include heating oil, rose 2.1 million to 129.95 million barrels. The DOE recorded a smaller rise of 500,000 barrels of crude and 900,000 barrels of distillates.

The API data also revealed a 6.9 percent drop in U.S. oil production compared to a year ago.

The results of the latest inventory report were a "mixed bag," and the numbers are "strange" when compared to the guesses, said Flynn.

Tim Evans of Pegasus Econometric Group said the "burden of proof is with the bulls" and the "absence of bullish news could allow the recent downtrend to continue."

Natural gas supplies rise in-line with expectations

Natural gas futures may see mixed trading early Thursday after the latest inventory report revealed a rise in stocks that falls in-line with the market's expectations.

Ahead of the news on the NYMEX, June natural gas fell 0.80 cents to $2.254 per British thermal unit.

After Wednesday's close, the American Gas Association said U.S. natural supplies rose 79 billion and total 1,559 billion cubic feet for the week ended May 14. Natural gas storage capacity is now at 48 percent of capacity.

Analysts expected this week's report to show a rise of 70 billion to 90 billion cubic feet in natural gas stocks. Last week's data showed a 72 billion cubic feet increase during the week ended May 7.

Analysts at Pegasus Econometric Group had said that if this week's data are in-line with expectations, the report will be mildly supportive compared to the year-ago rise of 92 billion cubic feet in supplies.

Coffee futures continue higher on cool weather

Coffee futures rose to a four-month high on news of a cold front in Brazil despite weather forecaster's emphasis that no threat of frost in the coffee growing regions of Brazil is apparent.

Coffee prices jumped 7 percent Tuesday on the news of the cooler weather. Brazil's crops are already 30 percent smaller than last year's record production.

On the Coffee, Sugar and Cocoa Exchange, July coffee rose 6.10 cents to $1.23 a pound.

On Tuesday, Brazil estimated their upcoming crop at 19.7 million to 24 million bags, which is significantly lower than other forecasts of as much as 27 million bags. Last year, Brazil produced 34 million to 36 million bags, according to Boyd Cruel, softs analyst at Alaron Trading. "The weather will continue to add volatility to this market during harvest."

Gold futures fall

Gold futures fell as the market continues to focus on the threat of further gold reserve sales after the U.K. announced on May 7 that they would sell about half of their reserves.

On the Commodities Exchange division of the New York Mercantile Exchange, June gold fell 70 cents to $273.50 an ounce and July silver fell 5.3 cents to $5.285 an ounce.

The market has failed to react positively to Wednesday reports that Jean-Claude Trichet from the Bank of France has said U.S., German, French and Italian central banks were against selling gold reserves.

After Wednesday's close, Robert Rubin, the U.S. treasury secretary, prompted a Senate Appropriations subcommittee to approve a request by the Clinton administration which would allow International Monetary Fund gold sales to help fund debt relief in poor countries.

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